Unit 8: Mergers & Acquisitions and Beavhioral Finance Flashcards
What is Confirmation Bias
Searching for information that confirms what you believe and ignoring contrary
What is Representative Heuristics
Reliance on stereotypes analogies, or limited samples
What is conglomerate acquisition
Acquisition of firm in unrelated industry
What are the cost savings from acquisition
Economies of scale, economies of vertical integration, Complementary resources,
An Amalgamation can best be described as
combination of firms joined by merger, consolidation, acquisition
What is Overoptimism Bias
Over optimistic view of potential outcomes
What are the 3 biases in Behavioral Finance
Overconfidence, overoptimism, confirmation bias
What is the House Money Effect
Making different than normal (riskier) investment decisions with earned or won money
What is a horizontal acquisition
Acquisition of firm in same in same industry
What is Overconfidence Bias
Belief your abilities are better than they really are
What are two purely financial side-effects of mergers (things that occur regardless of the merger making economic sense)
Earnings per share growth and diversification
What is Affect Heuristics
Reliance on gut instincts or emotion instead of analysis
What is a Circular bid
Corporate takeover bid communicated by direct mail to shareholders
What is a tender offer
A public offer by one firm to directly buy shares of another
What is synergy
Positive incremental gain with combination of two firms through merger or acquisition
What is a joint venture
Agreement between two firms to create separate co-owned entity to pursue joint goal
What is a stock exchange bid
Takeover bid communicated to shareholders through stock exchange
What is frame dependence
Making different decisions depending on how question or problem is framed
What is consolidation
A new firm is created, both acquired and acquiring firm cease to exist
What is a vertical acquisition
Acquisition of firm at different steps in a production process
What is Heuristics
Rules of thumb, mental shortcuts
What are some reasons for acquisition
Marketing gains, Strategic benefits, Market power
What is a proxy contest
Firm soliciting a sufficient number of shareholders to vote to replace existing management
What is a merger
Complete absorption of one company by another
What is behavioral finance
Dealing with the implication of reasoning errors in financial decisions
What is a leveraged buy out
Traded firm going private with borrowed omney
What are possible tax gains from acquisition
Net operating losses, Unused debt capacity, surplus funds, asset write-ups
What is a strategic alliance
Agreement between two firms to cooperate in pursuit of joint goal
What are the 3 basic legal procedures on firm can use to acquire another?
Merger or consolidation
Acquisition of stock
Acquisition of assets
